Thursday, July 21, 2011

The Euro Bailout v3.0

Well today was the big meeting in Brussels. Big things were expected-- and they delivered, especially when it came to expanding the EFSF {Europe's Bailout Fund}. Here's a quickie list of the major bulletpoints:


* Greece will partially default and be recieving another 110 billion rescue package
* EFSF loans to Greece will be extended to 15 years from it's current 7 years.
* EFSF loans to Greece will have the interest rates reduced on them.
* The EFSF will now be able to help recapitalize troubled EU banks (much like TARP)
* The EFSF will now be able to purchase EU government debt in the secondary markets (much like QE2)


In my humble opinion, there are two points that come up here. First is that the size of the EFSF will need to be dramatically expanded, perhaps to €2 Trillion. This is up from it's current €440 billion. Second is that there appears to be no real incentive for other nations to get their house in order when the EFSF will backstop their borrowing and guarantee low interest rates on that borrowing. That said, this does quite a bit for Greece and the last two bullet points looks like a winner to halt the bleeding of other nations' debts, including Spain and Italy this week. I'm surprised Germany and Finland went along with these last two points. Even Ambrose Pritchard, a noted Euro skeptic and gloom and doomer, was impressed:  

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8653579/Europe-steps-up-to-the-plate.html

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